Understanding the Final Mental Health Parity and Addiction Equity Act Regulations

1. Focus On: Final Mental Health Parity and Addiction Equity Act Regulations Christine L. Richardson, Thomas N. Makris and Matthew C. Ryan December 4, 2013

2. Topics of Today’s Discussion When does the MHPAEA apply? How has MHPAEA parity testing changed under the new final regulations? How does the MHPAEA interact with the ACA and federal discrimination laws? What state laws may be implicated by the MHPAEA?

3. Background on the MHPAEA • Not a mandate, plans need not provide Mental Health benefits (except for Essential Health Benefits under ACA). • Compares “Plan’s” Mental Health/Substance Use Disorder (“SU Disorder”) benefits to Medical/Surgical benefits. • Benefit types defined by Plan, in accordance with Federal law (ACA) and State law (as applicable).

4. Final MHPAEA Regulations • Final regulations issued by Departments of Labor, Treasury, and Health and Human Services in November, 2014, generally applicable for plan years starting on or after July 1, 2014: • Applies to grandfathered and non-grandfathered plans alike • Changes to parity testing across tiered networks, special subclasses of the outpatient classifications • Clarification of “Intermediate benefits” and Nonquantitative Treatment Limitations (“NQTLs”) • Increased cost exemption (applicable in alternating years; testing and notice requirements) • Reemphasis on disclosure requirements (generally duplicative of ERISA) • Lifetime and annual limits still in effect but largely superseded by ACA.

5. 2010 Interim Regulation’s Parity Definition (THEN) • Parity is the existence of similar terms in all: • Financial Requirements (e.g., deductibles, out-of-pockets, co-pays, co-insurance) • Quantitative Treatment Limitations (e.g., waiting periods, treatment frequency limits, treatment visit caps) • Nonquantitative Treatment Limitations (“NQTLs”) • Exceptions to requirement of similar terms: • “Clinically approved standards of care” allowed for differing NQTLs for Mental Health/SU Disorder benefits.

6. 2013 Final Regulation’s Parity Definition (NOW) • Parity is the existence of similar terms in all: • Financial Requirements (e.g., deductibles, co-pays, co-insurance) • Quantitative Treatment Limitations (e.g., waiting periods, treatment frequency limits, treatment visit caps) • Nonquantitative Treatment Limitations (“NQTLs”) • Scope of NQTLs clarified and expanded. • “Clinically approved standards of care” NQTL exception eliminated.

7. 2010 Interim Regulation’s Parity Testing (THEN) • Similarity of Mental Health/SU Disorder benefit terms and Medical/Surgical benefit terms tested separately across the 6 different Classifications of benefits: • Inpatient, in-network • Inpatient, out-of-network • Outpatient, in-network • Outpatient, out-of-network • Prescription drugs • Emergency services • “Intermediate” Mental Health/SU Disorder benefits arguably outside of 6 Classifications and, thus, need not be tested against any Medical/Surgical benefits.

8. 2013 Final Regulation’s Parity Testing (NOW) • Similarity of terms tested separately across the 6 different Classifications of benefits, plus 2 special sub-classes: • Inpatient, in-network • Inpatient, out-of-network • Outpatient, in-network • Office visits / Other (e.g., surgery) • Outpatient, out-of-network • Office visits / Other • Prescription drugs • Emergency services • Different network tiers tested separately • 6 Classifications all-inclusive (no “Intermediate” exception)

9. MHPAEA’s Scope • Parity applies to non-retiree Group Health Plans sponsored by employers with 51 or more employees. • Parity must be present across every “plan,” which is defined as every single possible combination of coverage options. • EAP Issue One: Free Employee Assistance Program offers some mental health treatment, but not in all Classifications. (Another reason to ensure EAP qualifies as an excepted benefit.)

10. The MHPAEA and the ACA • Affordable Care Act ended annual and lifetime caps on Essential Health Benefits, including “Mental Health and SU Disorder services.” • Providing Mental Health-related Preventative Care (e.g., smoking cessation treatment) as required by the ACA will not trigger MHPAEA.

11. Mental Illnesses and Addiction May be Disabilities • ADA disabilities include both physical and mental impairments that substantially limit major life activities. • Americans with Disabilities Amendments Act of 2008 eased plaintiffs’ efforts to cast mental health issues as disabilities. • Addiction may be disability, but ADA exclusion of persons currently using illegal substances.

12. Consistent with MHPAEA, but Violative of the Federal Anti-Discrimination Laws? • MHPAEA’s lack of mandate allows for explicit exclusion of coverage for any specific condition, but neither the MHPAEA nor ERISA preempts the ADA. • Equal access trumps discrimination claims? E.g., McNeil v. Time Ins. Co., 205 F.3d 179 (5th Cir. 2000), cert denied. • Benefits distinction based on mental health disability constitutes violation? Johnson v. K Mart Corp., 273 F.3d 1035 (11th Cir. 2001), reh’g granted and never decided. • ADA Section 501 safe harbor for underwriting-based limitations in bona fide benefit plans and “subterfuge exception.”

13. Parity in Financial Requirements and Quantitative Treatment Limitations Under Final MHPAEA Regs • Identify all financial requirements and quantitative limits (and subclasses and tiers) that apply to “Substantially All” (2/3 or more) benefits in that Classification. • For any requirement/limit applying to substantially all benefits, identify the “Predominant” level of the requirement/limit (applying to more than 1/2 benefits) in that Classification. • Ensure in the Classification, there are no requirements / limits on Mental Health/SU Disorder benefits that: • do not also apply to “substantially all” Medical/Surgical benefits; or • are more onerous than the “predominant” level applicable to Medical/Surgical benefits.

14. Parity in Financial Requirements and Quantitative Treatment Limitations: “Substantially All” Test Inpatient, Out-of-Network Medical/Surgical Benefits

15. Parity in Financial Requirements and Quantitative Treatment Limitations: “Substantially All” Test Substantially all Inpatient, Out-of-Network medical/surgical benefits subject to copay. Therefore, Inpatient, Out-of-Network Mental Health/SU Disorder benefits cannot be subject to any coinsurance financial requirement. Inpatient, Out-of-Network Medical/Surgical Benefits

16. Parity in Financial Requirements and Quantitative Treatment Limitations: “Predominant” Test Inpatient, Out-of-Network Medical/Surgical Benefits

17. Parity in Financial Requirements and Quantitative Treatment Limitations: “Predominant” Test Inpatient, Out-of-Network Mental Health/SU Disorder benefits cannot be subject to a copay exceeding $25. Inpatient, Out-of-Network Medical/Surgical Benefits

18. Parity in Financial Requirements and Quantitative Treatment Limitations: Tiered Networks Mental Health/SU Abuse Medical/Surgical In-network (TIER 1), in-patient In-network (TIER 2), in-patient In-network (TIER 1), in-patient In-network (TIER 2), in-patient

19. Parity in Financial Requirements and Quantitative Treatment Limitations: Tiered Networks • “Tiering” of service providers can be based on “reasonable” factors like total cost and quality of care. • Tiering cannot be based on provider’s status as Medical/Surgical or Mental Health/SU Abuse provider. • Tiering should avoid becoming division of general practitioners and specialists by proxy.

20. Testing for Parity in NQTLs: Identifying NQTLs • NQTLs include: • Utilization review/Medical management standards (medical necessity/appropriateness, experimental treatment exclusions) • Formulary design (prescription brand/type limits) • Network tier design (e.g., preferred in-network tier with mostly medical providers and second, more expensive in-network tier with mostly SU Disorder providers) • Provider admission standards • Determination standards for reasonable charges • Fail-first/Step therapy protocols • Treatment completion provisions • Geographic, facility type and provider specialty limits • EAP Issue Two: Requirement to seek assistance from EAP before mental health practitioner is barred.

21. Testing for Parity in NQTLs: Comparing NQTLs • NQTLs listed in Plan for Mental Health/SU Disorder benefits must be “comparable” to NQTLs listed in Plan for Medical/Surgical benefits. (No numerical cutoffs.) • NQTLs for Mental Health/SU Disorder benefits must be “applied no more stringently” than NQTLs for Medical/Surgical benefits • Compliant Plan document not enough for compliance. • Differing impact of consistently-applied terms is not violative, but example 7 suggests documenting process and evidence relied on.

22. State Mental Health and SU Disorder Laws • Preempted by ERISA for self-insured plans, but applicable to MEWAs and fully insured plans. • Certain states impose mandates: • California: Cal. Ins. Code §§ 10144.5, 10125 (Knox-Keene Health Care Service Plan Act) • New York: N.Y. Ins. Law § 3221(l)(5) • Texas: Tex. Ins. Code Ann. §§ 1355 • Others impose more demanding parity requirements: • Maryland: Md. Code Ann. Ins. § 15-802

23. MHPAEA Enforcement • Enforced by Departments of Labor and Treasury against sponsors of group health plan. • HIPAA violation excise tax rate ($100 per participant per day). • Enforced by Department of Health and Human Services and State insurance commissioners against insurers.

24. MHPAEA Check-up Priorities • Eliminate any provisions relying on clinically approved standards of care or intermediate care exceptions. • Identify available differentiations in Medical/Surgical and Mental Health/SU Disorder benefits based on out-patient sub-classes and on multiple tiered benefits. • Perform new Financial Requirement/Quantitative Limitations parity review if terms of coverage have changed. • Perform a NQTL parity review. • Review contractual provisions with a focus on legal compliance and indemnification (with health insurer, TPA, Managed Behavioral Healthcare Organization, etc.).

25. Pillsbury’s Employee Benefits Professionals Thomas Makris, Counsel (Sac/SV) TMakris@pillsburylaw.com (650) 233-4509 Christy Richardson, Partner (SF) CRichardson@pillsburylaw.com (415) 983-1826 Matthew Ryan, Associate (NY) Matthew.Ryan@pillsburylaw.com (212) 858-1184